50 point cut

[temeculaguy]

patiently, don’t feel bad, Christmas in London is almost unbearable for So Cal natives, Solvang is better. Save your money and go in the spring, I went in winter and it took four months to get the feeling back in my toes and ears.

HLS, great posts, good range, nice sarcasm and irony blended with wisdom, a pleasant read. I enjoyed your mom’s quote and will likely use it on my children. I like how you didn’t throttle or attack your counterpart but made your point, this is how the top ten or so piggy’s play and it works. btw, I sold out my interest in that property and am off the loan, thanks for the off site advice.

CMB if you read this after your weekend, most of those who have been around have laid out their R/E plays, read the old threads. I know most of the regulars situations but I learned them over time and have learned from them over time in forming my own decisions but mostly the bears know what to do, we just use each other to stay strong. We all know R/E will return to 125-150x rent but we doubt ourselves because of how slow things move, then looking back we feel good yet we think it can’t keep going down and then it does. This isn’t bearish, it’s logic and history. Unfortunately at 35 you haven’t yet experienced a full cycle as an adult, in ten years you will have and you will be able to see the big picture. Here’s my data that I will bring. To allow you to apply it to any market and income level I will take out the specifics, they are available upon request or with little effort in reading old threads, use these formulas for any income, down payment or market.

My first home purchase price was 3x my income, I made the median, bought a median home and this was at the peak of the last market, about 1991. In the mid 1990’s prices were near the bottom, sold for almost no profit but moved up to a home twice the size and cost of the median because my income had risen and I was making over the median, purchase price was 2x my income (in today’s terms, would be a 700k home on 350k income). I am cashed out now, renting, making well above the median, yet in 2006 I refused to buy because the purchase price of my chosen market was 4x to 5x my income (which has increased more than inflation). I am waiting for 3x or lower. This week I can buy that house for 3x but I chose not to, in six months I will re-evaluate. If it is 2x my income I will buy, otherwise I will wait. with inventories rising and foreclosures increasing, time is on my side. 18 months ago rent was 300x, six months ago it was 250x, today it is 150-200x. The person I rent from is down more than 30% from when they bought 2 years ago, when it hits 50%, I stop renting. That’s my data, i will buy at 2x income and I will get what I want within one year, I guarantee it.

[kewp]

I wonder if this rate cut was basically a signal from the Fed to the rich folk to ‘get outta dodge’?

[cr]

There’s already mainstream specualtion as to whether this cut was beneficial or not, given how the 10Yr and dollar responded.

Just rip the band-aid off, bleed out, and get it over with.

[cr]

I posted this here rather than start a new thread. With the 10yr rising and some mortgage rates actually climbing, this guy, while typically bearish, is probably right on.
____________________________________________________

Contrarian Chronicles 9/24/2007 12:01 AM ET
Bernanke: The anti-Robin Hood
By slashing the federal funds rate, the Federal Reserve chief robbed from the country’s future to give a gift to Wall Street. And a lot of ordinary Americans will end up getting hurt.
By Bill Fleckenstein
The Federal Bank of Guardian Angels roared down Wall Street last Tuesday. Its mission — to bail out the stock market — was a success (for now).
But the rate cut was no gift to Main Street, which lies outside the loop of crony capitalism.
Bobble-head Fed
Long ago, the Fed abdicated its responsibility under then-Chairman Alan Greenspan. But now chief Ben Bernanke and the boys at the Fed have taken irresponsibility to a new level, where they have clearly demonstrated that they work for Wall Street — and when Wall Street says jump, the Fed asks, how high?
I don’t quite have the database to research this, but I seriously doubt that we’ve ever experienced a 10% fed funds rate cut, or discount rate cuts of better than 15%, with the stock market a few percentage points off an all-time high.
And at this rate — no pun intended — we could see another record high in almost no time. I suspect that’s never happened before, either, demonstrating that no real pain had been taken prior to the bailout.
Yet the Fed’s board members felt the need — when they knew they were being closely watched and knew they would be telegraphing a message — to telegraph the following message: We don’t care what happens to the dollar or, by extension, the Treasury market. We care only about Wall Street.
A rate cut to be rued
Now the dollar will sink, and inflation will almost certainly rise. And though the Fed was able to drive overnight rates lower by 50 basis points, the most important development in the wake of its action was the decrease in the price of longer-term Treasurys, as rates out 10 years and longer rose over 25 basis points over the next three days.
So while the Fed, in its role of bartender of last resort, can lower short-term interest rates, over time I believe that long rates will rise, as foreigners (and Americans) digest what last week’s Fed action means. Folks will recognize that inflation is not measured excluding food and energy, and will realize that inflation in this country is 5%-plus — which would argue for long-term rates in the neighborhood of 7% or 8%. Thus it has been left up to the currency and Treasury markets to discipline the Fed, which always takes longer and is always far more painful.
Obviously, another consequence is that the moral hazard has been raised yet again. It didn’t take long for someone who probably should have gone out of business for acting irresponsibly to start whining about wanting some more help at the bailout trough. That would be Countrywide Financial (CFC, news, msgs) CEO Angelo Mozilo, who last Wednesday suggested that Fannie Mae (FNM, news, msgs) ought to be allowed to buy mortgages of up to $850,000.
Maybe he’ll get his way, as just that day the Office of Federal Housing Enterprise Oversight reversed itself regarding future growth rates of government-sponsored entities. It’s hard to say exactly what will be possible until some form of financial discipline is brought to bear in this country.
Innocent victims of drive-by central banking
Though it’s obvious the stock market benefited from the Fed’s action, it might not be quite so clear who will get hurt. Obviously, those on fixed incomes, like retirees, will be hurt. Children will be hurt, because they’re the ones who will have to pay for the incredible mess that will have to be sorted out at some point. And anyone old-fashioned enough to save money will be hurt.
Of course, those who will benefit (for now), in addition to the extremely wealthy, are speculators. It seems the national pastime in this country is to speculate and lever up. And then, when one and two plans don’t work, demand to be bailed out. And by the way, your demands will be met.
Cut from the Greenspan cloth
To sum up: Given the fact that folks were going to be scrutinizing what the Fed did, and what message that would send about what the Fed intends to do at future meetings, last week’s 50-basis-point rate cut has to rank up there with the two most irresponsible moves pulled by Greenspan. Those were when:
• In October 1998, on an option-expiration Friday, Greenspan cut rates — with about an hour of trading to go.
• In January 2001, he sprang a surprise 50-basis-point rate cut.
The supposedly clairvoyant crowd at the Fed never sees problems coming, but folks always assume that it will be able to save them via the printing press. Though that’s worked for a long time, in the end it’s going to lead to huge problems for this country, as anyone with an ounce of brains understands.
I don’t think the Fed’s punch-bowl fill-up will be able to ward off recession or restart the housing bubble. All the Fed will have accomplished is to postpone some of the fallout from our current problems while making them even worse in the long run.

[HereWeGo]

More nonsense from Mullethead, but that’s par for the course. The rate cut had nothing to do with Wall Street, and everything to do with the credit/bond markets (especially the CP market and the 91-day yield.) Yes, there was the side effect of a market spurt, but that will change with time if economic conditions are as dicey as the Fed fears.

That said, I’m sure the Fed has little regard for market bears, and rightfully so.

[cr]

Aren’t the credit/bond markets and commercial paper, basically tied to Wall Street through the companies that hold them, particularly MBS that are part of mutual funds? Different yes, but independent?

Agree “Mullet head” is perpetually pessimistic, but I think he’s right about the negative consequences, and I still question the point of this rate cut.

[HereWeGo]

The CP market is often used to support on-going operations, as I understand it. There’s more direct funding than the stock market.

Basically some companies borrow from the capital markets, make a higher return than the interest rate, then pay off the creditors. So if that aspect of the CP market seizes up, or just becomes much more expensive, then the companies would likely have to downsize.

It would be interesting to know what sorts of companies employ this type of model (other than the financials.)

I do have a serious problem with the whining of the bears. They were wrong, they should own up to that fact, that doesn’t mean everything is OK. It could just mean that their timing was wrong. If it’s true that sentiment on the Street has turned overwhelmingly bullish, that is, historically speaking, a time to be extremely cautious.

[Author]

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